Company Car Benefit Value – A Complete Guide to Calculation
Many employees in Israel get a company car as part of their employment package - it's convenient and cost-effective. But, it's essential to know that you must declare the car's benefit value ("shovi shimush"). This value gets added to your gross salary for tax purposes, which directly affects how much income tax you pay each month.What is the Company Car Benefit Value?
Benefit value is the tax term for the monetary worth of having a company car provided by your employer. It’s a crucial element in calculating your taxable income, so it’s essential for anyone with a company car to understand how it is determined.
The Tax Authority views a company car as a salary benefit, so its value must be shown on your monthly payslip.
How is the Benefit Value Calculated?
Since 2010, Israel has used a clear, simple system: the benefit value is set at 2.48% of the car’s official price list value (linked to the index). This is known as the “linear model.”
Example calculation: If your car’s list price is ₪100,000, your monthly benefit value will be ₪2,480.
Formula: Car’s list price × 2.48% = Monthly benefit value
Price Cap for Luxury Vehicles
For luxury cars, the Tax Authority has set a price ceiling for calculating the benefit value. As of today, this ceiling is ₪583,100. This means that even if your car is worth more, the benefit value will be calculated based on a list price of ₪583,100 only. This prevents excessive tax charges for high-end vehicles.
Discounts for Green Vehicles – Promoting Eco-Friendly Choices
To encourage use of environmentally friendly vehicles, significant benefit value discounts are offered for choosing a green car:
Discounts by car type:
-
Regular hybrid car: ₪560/month discount
-
Plug-in hybrid (electric charging): ₪1,130/month discount
-
Fully electric car: ₪1,350/month discount
These discounts can save employees a significant amount of money. For instance, opting for a fully electric car, for example, can save you ₪1,350 a month, or ₪16,200 a year (before tax).
Important Change: Cancellation of the Mild Hybrid Benefit
Note that the benefit value discount for mild hybrids (MILD HYBRID) with only partial assistance technology has been cancelled following a High Court ruling. As of June 2024, these vehicles are taxed at their full benefit value, the same as conventional combustion engine cars, and no longer qualify for a discount.
This is particularly relevant for anyone considering a mild hybrid versus a regular car – they are now taxed identically in terms of benefit value.
How to Check Your Car’s List Price?
To accurately calculate your benefit value, you need to know your car’s official list price. You can check this by:
-
Visiting the Tax Authority website – use your vehicle’s model as listed on your car licence.
-
Contacting us at GoTo Leasing – we will provide the precise information.
Impact on Net Salary and Employer Costs
It is important to understand that the benefit value calculation affects both the employee and the employer:
For the employee:
-
Gross salary increases – the benefit value is added for tax purposes.
-
Income tax – you will pay tax on the benefit value according to your tax rate.
For the employer:
-
National insurance contributions – the employer pays on the benefit value.
-
Tax advantages – car costs (fuel, maintenance, insurance) are recognized as business expenses.
-
Administration – managing reporting and payments related to company cars.
Tips to Save on Benefit Value
-
Choose a green vehicle – as above, electric or (non-mild) hybrid cars can save thousands of shekels each year.
-
Avoid expensive options – remember, every add-on to the car’s price increases the benefit value. Consider whether extras are worth the higher tax.
-
Car leasing deal – leasing can offer greater flexibility in car choice and maintenance costs.
The Connection Between Benefit Value and Leasing
Leasing advantages regarding benefit value:
-
Ability to choose a newer car with the same or even lower benefit value.
-
Flexibility to switch to a greener model.
Before signing a car leasing deal or accepting a company car, it is important to check the benefit value and understand its impact on your net salary. Leasing a green vehicle can benefit you not just through lower fuel and maintenance costs, but also with significant savings in benefit value.
With a good understanding of the system, you can make smart decisions that save you money and suit your needs.
Speak to our and our customer representatives will be happy to help you find the leasing deal that best fits you, considering your car’s benefit value.